South Africa and the other members of the Group of 20 (G20) global forum will submit plans to the forum’s summit in November on how to grow their combined economies by 2 percent above current trajectories over the next five years.
Dr Heather Smith, Australia’s G20 “Sherpa” (organiser) said at a seminar in Pretoria last week that an extra 2 percent growth would boost the collective G20 economy by over $2 trillion (R21 trillion) and create millions of new jobs.
Australia is the G20 president this year and will host the 2014 summit in Perth.
“This kind of goal is a first for the G20, and it helps drive our ambitions,” she said at the seminar organised by Unisa and the Institute for Global Dialogue.
“It builds in accountability in a very political way into the G20.
“We will deliver on this growth ambition through a combination of measures on trade, investment and employment, captured in growth strategies, which each country is preparing and that collectively aim to achieve our goal.”
Smith said the world economy was recovering “sluggishly” from the 2008 global financial crisis. The International Monetary Fund (IMF) expected it to grow by only 3.6 percent this year, “and the forecasts are likely to go down”, – compared with an average of almost 5 percent per year over the five years prior to the financial crisis.
The International Labour Organisation had estimated last year that the crisis cost the world 62 million jobs.
“The WTO (World Trade Organisation) predicts a growth rate of 4.7 percent in global trade for 2014, still below the pre-crisis average of 6 percent per annum from 1980 to 2007.”
The slow recovery was having a serious social impact, raising inequality, within countries even more than between them, Smith said.
Despite Africa’s impressive recent economic achievements, boosting its middle class to 350 million people, the numbers of Africans living in poverty had also increased, from 376 million in 1999 to 413 million in 2010.
“While some causes of inequality are matters of domestic politics, the G20 can have an impact through its strategies to improve growth and implementing measures to ensure good business conduct,” Smith said.
“When the pie is not growing, and people’s living standards are not rising, achieving better outcomes for the world’s most vulnerable people becomes all the more difficult – it has a direct impact on our ability to lift people from poverty, and provide the welfare and employment services that they need.
“This is why Australia has prioritised growth rather than seeking to address a multitude of worthy issues. It’s critical we stay focused so we can deliver real economic outcomes.”
The G20 was the right forum to tackle sluggish growth and rising unemployment and inequality because it had the right mix of advanced and developing countries, representing over two thirds of the world’s population – including two thirds of its poor – and producing about 85 percent of global gross domestic product (GDP) and three quarters of world trade.
The G20 had proven itself by containing the global financial crisis and resisting the push for trade protectionism. It now faced a bigger challenge in some ways – how to enable sustainable growth.
And so Australia was focusing the G20 agenda around three key areas:
- Promoting strong economic growth and employment by empowering the private sector.
- Making the global economy more resilient to future shocks.
- Strengthening global institutions and ensuring their continuing relevance to the global economy of the 21st century.
The role of the private sector would be crucial to the success of the G20’s plans.
“At the same time as we create an environment that enables businesses to invest and employ people, we need to ensure that business is doing its share as a good corporate citizen. That is why support from both business and governments to improve the stability of the global financial system is so important, as well as proposed measures on tax and transparency reform.”
Smith said the reforms that the G20 was pursuing to reach the collective 2 percent extra growth target over five years would focus on trade, employment and infrastructure.
The G20 was re-thinking trade measures in a complex new environment.
“In an era when goods and components often crossed national borders many times before ending up in the hands of the final consumer as a result of global value chains, the traditional calculus of trade negotiations changes; the ability to import becomes as important as the ability to export.
“Goods are no longer produced in one country and sold in another – goods are ‘made in the world’.
Between 30 percent and 60 percent of G20 exports consist of imported inputs or are used as inputs by other countries.”
And so the G20 was discussing ways of improving global value/supply chains to drive growth.
Smith said it was vital for individual G20 countries to streamline trade and free up services, to give businesses, especially smaller ones, access to regional and global markets.
The G20 trade ministers had just met when they agreed that it was important to implement the Trade Facilitation Agreement, which had been adopted at the WTO Bali ministerial conference last December.
Robert Milliner, the Sherpa for the B20 group of business people supporting the G20, said reducing supply chain barriers could increase global GDP by $2.2 trillion – more than removing all existing tariffs on trade in goods, which would increase global GDP by $360 billion.
Removing trade barriers and delays at borders could also increase food security in developing countries by reducing food wastage and lowering costs to consumers.
Milliner agreed, saying about 30 percent of traded food was lost “between farm and fork” through wastage, including through poor transport infrastructure.
Higher growth was the best way to create employment, Smith said, but the G20 was also focusing on measures to increase the employment of youth and women, including by improving their skills.
Fuller participation of women in the economy would boost global growth substantially.
Smith said the G20 members were also working to address the estimated 2030 global infrastructure gap of $70 trillion as another key measure to boost economic growth.
The best way to achieve this was by removing impediments to private sector investment in infrastructure and to make better use of multilateral development bank resources – especially for developing countries.
She said just as the G20 should help money come in, it also needed to ensure it was shared around, including through better domestic taxation, to ensure the sustainability of the system.
It was working to reform the outdated international tax system to ensure that multinationals paid tax in the countries where they made their profits instead of elsewhere.
It was also working to boost the revenues that countries received through remittances by reducing the costs of moving this money. While the average cost of sending remittances to and from G20 countries was above 8 percent, the costs in sub-Saharan Africa were the highest in the world at over 11.5 percent.
She said global remittances totalled $400bn in 2012 and were expected to rise to $700bn by 2016.
G20 countries were also making good progress in implementing primary financial regulatory reforms to prevent another financial crisis.
This included building resilient financial institutions, ending “too-big-to-fail” institutions, addressing risks associated with the shadow banking sector and making derivatives markets safer.
She noted, though, that the G20’s important decision to reform the IMF by giving emerging and developing countries a greater say had still not been implemented because of opposition in the US Congress.
It was up to the US to remove that obstacle, but she did not think it would happen this year.